NZD/USD – New Zealand Dollar Lower, Despite Stellar Trade Balance

The New Zealand dollar has posted losses on Monday, resuming the downward trend which marked the currency in the Friday session. The pair is trading at 0.7050 in the North American session. On the release front, New Zealand’s trade surplus surged to NZ$385 million, well above expectations. In the US, Goods Trade Balance and Flash Services PMI, both minor indicators, missed their estimates. On Tuesday, the US will release Final GDP and CB Consumer Confidence.

There was excellent news from New Zealand, as the trade surplus jumped to NZ$385 million in May, much higher than the forecast of NZ$185 million. This marked the highest surplus since March 2015. Despite the robust release, the New Zealand dollar lost ground on Monday. Financial markets across the globe are still in shock after the stunning news on Friday that the UK had voted to exit the European Union. The markets had bet that the Remain camp would narrowly win the day, and the opposite result sent stock markets tumbling on Friday. The historic decision raises many questions and has resulted in political and financial instability in Europe and the UK. The pound has plunged some 10 percent since the referendum. The New Zealand dollar is also lower since the vote, as investors have dumped risky assets in favor of safe-haven assets like gold and the Japanese yen.

The fallout after the historic EU referendum is difficult to gauge just after the vote, but there’s no doubt that Brexit will have unpredictable economic and political consequences in the UK and Europe, perhaps for years to come. Already, Prime Minister David Cameron has announced his impending resignation and the British Labor party is in turmoil. Even before the dust of Brexit has settled, there are signs that this divorce between Britain and the EU could be rancorous and messy. One British MP quipped on Friday that the EU referendum was the “divorce of the century”. British politicians have said there is no rush to implement the EU exit mechanism, but furious European lawmakers have called for the UK to leave as soon as possible. Britain may have voted “Leave”, but the timing and the type of exit plan remain unclear. The future framework of political and economic relations between the UK and the continent will have to be negotiated and we will see plenty of uncertainty in the coming months.

The EU referendum has ushered in a period of instability and uncertainty across Europe, with Brexit seemingly the only certainty one can point to. On the EU side, the bloc has plenty of new headaches, as it must deal not only with the British exit but also from rejuvenated Euro-skeptics across Europe. The Brexit vote is likely to renew debate about EU membership in countries like the Netherlands and Denmark. Even in France, a staunch member of the club, EU membership could be revisited, as Jean-Marie Le Pen, head of the Front National party, has called for an EU referendum in France. The EU is under a real threat of destabilization and will have to figure out how to deal with the tremendous challenges suddenly brought on by Brexit.

Overshadowed by the Brexit vote, the US wrapped up last week with soft manufacturing and consumer confidence numbers. Core Durable Goods Orders came in at -0.3%, marking the third decline in the past four months. This figure was well short of the forecast of +0.1%. There was no relief from Durable Goods Orders, which posted a sharp drop of 2.2%, compared to forecast of a 0.5% decline. The UoM Consumer Sentiment report also missed expectations, with a reading of 93.5 points. The markets had expected a reading of 94.2 points. Next up is Final GDP on Tuesday, and the strength of the release could have major implications regarding a rate move during the second half of 2016.

NZD/USD Fundamentals

Sunday (June 26)

18:45 New Zealand Trade Balance. Estimate 185M. Actual 358M

Monday (June 27)

8:30 US Goods Trade Balance. Estimate -59.5B. Actual -60.6B

9:45 US Flash Services PMI. Estimate 52.0. Actual 51.3

Upcoming Key Events

Tuesday (June 28)

8:30 US Final GDP. Estimate 1.0%

10:00 US CB Consumer Confidence. Estimate 93.2

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Monday, June 27, 2016

NZD/USD June 27 at 11:00 EDT

Open: 0.7087 Low: 0.7023 High: 0.7100 Close: 0.7027

NZD/USD Technical

S3

S2

S1

R1

R2

R3

0.6793

0.6897

0.7011

0.7100

0.7231

0.7319

NZD/USD was flat in the Asian and European sessions. The pair has posted losses in North American trade

There is resistance at 0.7100

0.7011 is fluid and providing weak support

Current range: 0.7011 to 0.7100

Further levels in both directions:

Below: 0.7011, 0.6897 and 0.6793

Above: 0.7100, 0.7231, 0.7319 and 0.7454

OANDA’s Open Positions Ratio

NZD/USD ratio is showing long positions with a strong majority (61%). This is indicative of trader bias towards NZD/USD reversing directions and moving to higher ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.